As an early-stage technology company, it can be an exciting time when your business finally receives funding. But the work doesn’t stop there. Once you have successfully secured this first round of funding, you may be tempted to sit back, relax, and focus solely on the present operations of your business. However, investor scrutiny will only increase, and there are a number of areas that require attention after you receive your funding. Here is a list of the issues you should be focused on, but may not be, now that you’ve completed a successful round of funding.
1. Investors will expect a higher level of reporting now that they have funded you
Now that you’re funded, your investors will expect a higher level of controls reporting to keep tabs on your company’s progress. You are going to have to report financial information to your board of directors/investors in a more sophisticated manner than you have done previously. Investors will now expect you to report on:
- Performance against plan
- Top line revenue/bookings
- Spending versus budget
- KPIs in your industry
- Understand the KPIs that are of greatest interest to your investors
- E.g. If you’re a SaaS company, the KPIs would include:
- Annual recurring revenue (ARR)
- Cost to acquire a customer (CAC)
- Churn
- Progress on non-financial milestones
- Progress in product development versus product roadmap
- Adding X feature or functionality and its integration into the current product
- Progress on hiring plan, especially key hires (e.g. bringing in a new CTO)
- Progress in product development versus product roadmap
Investors may also now require that your financial statements be audited by an independent CPA firm to ensure that financial best practices are being followed.
2. Your internal systems and processes may need an upgrade in order to produce the information needed by your board and investors
- Your internal systems and processes must be able to capture and report the appropriate information timely and reliably
- If your company presents inaccurate KPI or budget-versus-actual information to your board or investors, it can affect your credibility
- Pay attention to internal systems because as you begin to scale your business, these systems can break
- Is your accounting system sufficiently robust to take your business through this next phase of growth?
- Are processes in place adequate for key transaction cycles including purchasing, cash disbursements, and payroll? (As more people get involved, there is more opportunity for things to go wrong).
3. Investors will want to see that you’re achieving your hiring plan
Investors are aware that a significant portion of their funding will be allocated to adding headcount so you can achieve your growth plans. They want to ensure that you have the proper policies in place to support your hiring activities.
In order to achieve your hiring plan, begin by analyzing your employee benefit plans, payroll systems, and Human Resources policies:
- Do you have an employee handbook with appropriate policies?
- Is your benefits package competitive enough to attract the types of people you’re looking to hire?
- If you’re building a distributed team, can your payroll system deal with the complexities that come with that (different health plans, family medical leave polices, state and local tax withholdings, etc.)
4. Don’t lose sight of the next round of funding
Take the time to congratulate yourself on securing your recent funding, but remain attentive to the work it will take to obtain your next round as well. Timing is critical here. If your first round was intended to give you 18 months of runway, you should plan to start fundraising after about 12 months. Don’t wait until you are almost out of cash, as you will be in a weaker negotiating position. As long as you hit all the milestones you set out for yourself when you closed your first round of financing, you should be a in a very strong position when seeking your next round.
Conclusion
Keeping these areas in mind as you progress in your business will help you develop a strong foundation for future fundraising. Anticipating the expectations and requirements of your current investors will solidify your credibility with them. The more insight you have into the concerns and requirements of your investors, the better prepared you will be for future rounds of funding.
